Message from the Chairman of the Supervisory Board

Herve Defforey

In 2011, X5 grew sales and EBITDA by more than a third and enhanced its number one position in the Russian retail market in terms of market share and customer visits. Under the leadership of the new management team, the Company exceeded its expansion objectives with record new store openings and the successful fast-tracked integration of Kopeyka, while increasing efficiency to drive cash flow and profit performance. We are stepping up plans to drive sustainable, profi table growth, which creates value for our shareholders.

Oversight of X5’s management transition, business strategy and financial performance were high on the agenda for the Supervisory Board in 2011. Andrei Gusev, X5 CEO, has built a strong management team with Russian and international industry experience to execute on key priorities and move the Company forward. There is much to be proud of in X5’s achievements in this transitional year – with our customers, in our operations and on our bottom-line – giving us confidence that X5 is on the right track.

Together with the management team, the Board reviewed X5’s medium-term strategy and defined multiyear parameters for business development. Our key priorities, which Andrei reviews in detail in his letter to shareholders, include:

  • Successful, customer-centric formats
  • Regional penetration and scale
  • Efficient operations and supply chains
  • Cash generation and financial strength
  • Profitable growth and higher ROE

We believe a sustained focus on these priorities is the best way to deliver long-term shareholder returns and a higher stock market valuation. The Board approved a three-year plan to step up investments in expansion of selling space, distribution and IT platforms while strengthening operational efficiency, in order to grow sales and profi ts and support healthy margins and return on equity. The Long-term Incentive Plan aligns senior management with these objectives for shareholder value creation.

This annual report provides information on the Company’s 2011 performance and future plans. We are committed to increasing communications in the coming year to build a better understanding of the Company’s key developments and financial prospects. I would like to thank X5’s management and our approximately 100,000 employees for their hard work and commitment for the benefit of our customers and shareholders, and look forward to reporting on our continued progress in 2012.